Business Irish

Wednesday 26 October 2016

Why tourism is the only sector that they'll never ever outsource

The tourism sector is doing great - but as with everything, it's all in the planning. Here are the steps Ireland must take to ensure continued tourism growth, writes Eamonn McKeon

Eamonn McKeon

Published 23/08/2015 | 02:30

Eamonn McKeon
Eamonn McKeon

This year looks set to be a record year for tourism in Ireland, with annual earnings exceeding €7bn for the first time ever, as almost eight million visit the country.

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Some 220,000 people depend on tourism for employment as the industry adds a further 4,000 to 5,000 jobs this year. Two out of every five jobs created in the Irish economy between 2011 and 2014 were in the tourism and hospitality sector. And 22,000 businesses (mostly micro- and medium-sized enterprises) are linchpins in the life of many communities throughout the country, since tourism reaches way beyond the urban hot spots.

In short, tourism is a major export earner and has played a huge part in our economic recovery.

Tourism is currently enjoying some very favourable external conditions and very favourable currency exchange rates for British and US travellers - however, it would be foolhardy to expect all this to last. Perhaps the most significant change in recent years has been our improved competitiveness, as reflected in the rise in 'value for money' ratings by visitors.

Throughout the noughties, the cost base of doing business in Ireland outpaced our competitors and resulted in the tourism offering becoming uncompetitive. Businesses redressed the issue, helped in no small way by supportive government initiatives to reduce the VAT rate and suspend airport departure taxes. This has handsomely paid off, helping to restore competitiveness, enabling unprecedented growth in access capacity -both air and surface - and delivering over 35,000 new jobs, or almost 40pc of all new jobs created over the past four years.

While there has been much discussion around the reduced rate of 9pc VAT on tourism services, it should not been seen as a concession but rather the correct positioning of Ireland against other successful European tourist destinations.

However, clouds are gathering on the horizon again as cost inputs are under upward pressures - something the National Competitiveness Council recently highlighted as a threat to competitiveness. Specifically, tourism enterprises are competitively disadvantaged in respect of the cost of utilities, local government rates and charges, and the availability of qualified staff.

So, what is the future for Irish tourism?

Forecasts indicate that worldwide tourism demand is on an upward trajectory. Airlines are ordering new planes, hotel chains are expanding, destination options are increasing, while online technology is providing the consumer with instant information and booking options.

Ireland is currently well-positioned in the international marketplace, with an established reputation, a competitive quality offering, a growing range of air and sea services, and improving customer evaluations.

The Government's recently published policy for tourism - People, Place and Policy - foresees 10 million overseas visitors spending €5bn annually (exclusive of carrier receipts and domestic tourism earnings) by 2025. The policy document sees employment in the sector reaching 250,000 by 2025. Many in the industry believe these targets to be relatively modest aspirations.

Lack of investment is the single largest threat to tourism growth reaching its true potential.

Now is the time to invest in tourism. Even in the short term, continued growth is threatened by a lack of capacity. For example, the increasing popularity of Dublin is leading to a shortage of hotel rooms in the city.

Unfortunately in Ireland, we have a poor record in forward planning. If Ireland is to capture the potential which clearly exists, a second runway at Dublin Airport will be required, together with greatly enhanced transport links to the city.

It seems apparent that capital investment by Government in tourism infrastructure through local authorities, the OPW, National Parks and Wildlife Services, Failte Ireland, and other state agencies currently falls short of what is required. Such investment in an indigenous sector can provide a powerful stimulus to wider economic activity across the entire economy.

A provision of not less than 1pc of annual export earnings from tourism in each of the next five years should be provided for in the soon-to-be-released government capital expenditure programme. It would make little sense to have demand-led aspirations as set out in People, Place and Policy without it being underpinned by an appropriate investment strategy.

In addition to investment in the tourism infrastructure, global destination marketing campaigns must be supported by adequate state investment. Destination marketing represents an investment, not a cost, to taxpayers. Failte Ireland estimates that every €1 invested by the State in destination marketing in the top source markets resulted in a visitor spend of €34 in the country.

Yet Ireland's spend on destination marketing has almost halved over the past seven years.

Ireland's presence has diminished in most source markets compared to five years ago, and its share of voice has fallen in its three top source markets - startlingly in Britain to just 20pc of what it was five years ago.

If the cycle continues, it will lead to a continued slide in awareness of Ireland as a destination.

The current tourism agency architecture on the island is less than ideal, with three tourism agencies, two government departments and the North South Ministerial Council each having a role in guiding the future successful development and expansion of tourism on the island. This system has been in place for 13 years, and given its unwieldy nature, it has performed reasonably well. However, it seems wise that a review of these structures be undertaken, and that the current architecture and financial commitments are fit-for-purpose in a world very changed since their original inception.

Irish tourism is currently in a good place, but that does not of itself assure the future. There are some external circumstances which we cannot control, but we must manage those that we can. The future should be that of a sector realising its full potential, driving economic growth in all parts of the country, while paying a handsome return for the state investment in facilitating further development and growth.

After all, tourism is an indigenous industry that will never be off-shored.

Eamonn McKeon is the outgoing CEO of the Irish Tourist Industry Confederation

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